At The Border Of East And West

The third largest island in the Medi t e r r ane an Se a , a t the crossroads between Europe, North Africa and the Middle East, Cyprus has been a strategic location throughout history.

Since joining the European Union in May 2004 and joining the European Monetary Union in 2008, Cyprus has taken strides towards guaranteeing its role as a key link in the chain of global investment, last year alone the country of 800,000 people attracted US$5.8billion in FDI inflow.

China’s part in Cyprus’s story is only just beginning. As China has expanded its presence in Africa and formed closer ties to the European Union in the wake of the financial crisis, it’s interest in Cyprus has increased. In 2009 FDI from China grew to 3.7 million from just 1.4 million in 2008. As Rania Traiforos of the Cyprus Investment Promotion Agency points out this has led to “strong and fruitful” relationship between China and Cyprus.

Open for Business

Cyprus has a very competitive tax regime boasting the lowest corporation tax in the EU at 10% for both on-shore and off-shore companies. There is also a 2% levy on wage bills to contribute to Cypriot’s pensions and other taxes, such as VAT and stamp duty, are levied on certain activities. However the government has pledged to maintain the headline 10% corporate tax rate in the long term to encourage foreign investment.

The government puts special emphasis on investment in: R&D, information communication technology, energy, shipping, banking and financial services, education, professional services, medical services and health tourism. In some of these areas Cyprus is already highly developed in the field, for example the island’s merchant fleet is the third largest in Europe and ranks among the top 10 in the world.

Cyprus is also a very open climate to invest in with good financial services and a strong legal system. In the 2011 Index of Economic Freedom produced by the Heritage Foundation and the Wall Street Journal Cyprus jumped six places to be named the 18th freest economy in the world. Although it has some restrictions on residents of non-EU states investing in tertiary education, mass media, banking, and construction, the freedom of investment in the country rose to 75%, which is on a par with the US.

A number of big Chinese firms have already taken advantage of this open environment. Huawei Technology signed a deal for 20 million with a large Cypriot telecommunications firm MTN in 2009 for upgrading network infrastructure on the island. Cyprus has a double taxation agreement in place with China, which allows tax-free repatriation of profits and capital.

Foreign investors have many of the same opportunities as Cypriots with access to finance and standard legal practices. In most areas companies can be 100% foreign owned, which gives investors good opportunities both to invest growth capital in existing enterprises on the island and to set up their own companies to take advantage of the promising business environment.

Homes in the Sun

Traditionally property has been a strong sector in Cyprus, and for investors from China it might be of special interest as the government tries to cool down local property markets. However for those looking to invest substantial amounts there are various limitations to their ability to purchase proper ty on the island. Non-EU residents are restricted to one property per person, or per married couple. Also they have to apply to the district office of the Council of Minister where they are buying the house, although this is usually a formality as long as they can point to legitimate reasons for buying the house such as investment. For those looking to make substantial investments it is possible for non-EU residents to buy more than one property in the name of a company on the island. Property developers and lawyers on the island offer advice on this.

One of the most popular ways in recent years to invest in the buoyant property market of Cyprus has been to buy unfinished properties and then sell on again to medium or long term investors after a relatively short period, often before the property is even completed. Off plan properties usually offer considerable savings compared to completed properties, but it is important to research the local market and the prices of nearby completed properties before investing.

Residents of non-EU states are issued with a long-term visa when they purchase a property. Since 2010 this visa also grants them access to the other 27 EU states, however it does not grant permanent residence in Cyprus or the EU. There have been some legal issues with property purchases in Cyprus, especially in the North, which is de facto run by a separate administration to the Republic of Cyprus, the internationally recognized government. However this political risk means that property prices are as much as 30% lower than similar areas in France and Spain. In 2010 the government of Cyprus put together a tourism action plan to improve the resorts and infrastructure in the country to the level of other European countries, which could substantially increase the value of real estate over the long term.

The right place at the right time

Shipping is already a strength of the Cypriot economy, but there is still room for investment. Cyprus is one of only two “open registry” countries in the EU so non-residents can register ships under the Cypriot flag. There are two modern deep-sea port facilities at Limassol and Larnaca and there is no in Cyprus, as well as low fees for other legal forms and procedures associated with shipping. These factors along with the island’s strategic position allowing access to the European common market and giving easy access to the Middle East, Africa and the Suez canal leading to Asia mean that shipping is sure to be an area of further growth in the future.

These shipping lanes will only make the island more attractive as the economy fully integrates with Europe while offering access to the South and East. With an excellent business climate and government support for free trade and foreign investment this Eastern outpost of Europe is looking to grow with the rise of the Middle East and Asia in economic importance. Given these larger economic factors it seems that almost any sector in Cyprus still has good potential for growth.